Full Judgment
Rajesh Balia, J.
At the instance of the Commissioner, Jaipur, the Tribunal, Jaipur Bench, Jaipur, has referred the following question of law arising out of its appellate order dated 29-7-1980, passed in ITA No. 1011/Jp/79 for the assessment year 1997-98 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Commissioner (Appeals) to entertain the additional ground relating to claim under section 35B of the Income Tax Act, 1961, in respect of salary and postage expenses?'
2. During the assessment year 1997-98, the assessee-respondent made a claim for weighted deduction under section 35B of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), in respect of the expenses incurred during previous year wholly and exclusively for promotion of sale outside India of the goods, services or facilities. He has claimed deductions in respect of travelling expenses incurred outside India in connection with the business under section 35B of the Act. Out of the claim of Rs. 56,715 in respect of travelling expenses incurred outside India for the promotion of sale, only a partial claim of the assessee was accepted. In the appeal against disallowance of claim under section 35B of the Act, the assessee also made a request for considering the expenses incurred in respect of salary and postage amounting to Rs. 15,380 and 10,642 respectively, for weighted deductions under section 35B of the Act. The Commissioner (Appeals), following the decision of the Supreme Court in Additional CIT v. Gurjargravures (P) Ltd. : [1978]111ITR1(SC) declined to permit the assessee to raise this claim which was not raised before the Income Tax Officer during the assessment proceedings.
On further appeal, the Tribunal held that as a matter of fact the assessee had made a claim for weighted deductions under section 35B of the Act in the course of assessment proceedings itself and what the assessee was seeking to do before the Commissioner (Appeals) was a claim of larger amount and secondly the material was available on record on the basis of which the claim of the assessee could be considered and decided, and therefore, the ratio laid down in Gurjargravures' case (supra) would not restrict the discretion of the appellate authority to entertain such additional claims, as otherwise the appellate authority also enjoys the powers of the assessing officer in the matter of framing of assessment while considering the appeal. The Tribunal also referred to the claim and the material that was placed before the Income Tax Officer for sustaining the claim of the assessee under section 35B of the Act. It also referred to the comparative statement of sales and expenses on different heads for the assessment years 1977-78 and 1976-77 which was annexed with the letter dated 31-12-1977, filed by the assessee. The extent of export sales and local sale and the proportion to expenses under various heads were also indicated. The assessee has merely claimed before the Commissioner (Appeals) that since salary and postage expenses were incurred for export as well as local business, therefore, they had also to be considered for the purposes of section 35B of the Act in the proportion. In these circumstances, the Tribunal allowed the appeal by holding that the Commissioner (Appeals) has wrongly refused to entertain the claim of the assessee for consideration and remanded the case back to the Commissioner (Appeals) for deciding the said issue.
It is in the aforesaid scenario that the aforesaid question has been referred to this court for its opinion.
3. Learned counsel appearing for the revenue placing reliance on the decision in Gurjargravures v. CITs case (supra) urged that since the claim for deduction in respect of salary and postage under section 53B of the Act was not placed before the Income Tax Officer, the respondent-assessee was not entitled to raise this claim before the Commissioner (Appeals).
4. Having given our anxious consideration to the contentions made before us and gone through the aforesaid judgment in Gurjargravures' case (supra), we are of the opinion that this contention cannot be sustained. The Apex Court has not laid a straitjacket rule that in no circumstances additional ground for raising new claim which had not been raised before the assessing officer can be permitted to be raised before the appellate authority. It was only in the facts and circumstances of that particular case that the court held that permission to raise new grounds had rightly been refused. The assessee claimed for deduction under section 84 for the first time in respect of assessment for the previous year relevant to the assessment year in question. The Appellate Assistant Commissioner held that the question of error on the part of the Income Tax Officer did not arise as no claim for such exemption under section 84 of the Act had been raised before him. The Tribunal in its order did not mention that there was any material on record to sustain the claim for exemption, which was made for the first time before the Appellate Assistant Commissioner.
5. In this connection, it is worthy to note the provision of section 250 which lays down the procedure in appeal before the appellate authority against the orders of assessing officer. The appellate authority has been named differently from time to time in the statute. Originally the appellate authority was described at the relevant time as Appellate Assistant Commissioner. Sub-section (5) of section 250 clearly postulates that there is no inhibition against raising new grounds before the Appellate Assistant Commissioner. Such new grounds are required to be considered by the Appellate Assistant Commissioner unless he is satisfied that the same are due to wilful or unreasonable. Sub-sections (5) and (6) of section 250 read as under :
(5) The Commissioner (Appeals) may, at the hearing of an appeal, allow the appellant to go into any ground of appeal not specified in the grounds of appeal, if the Commissioner (Appeals) is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable.
(6) The order of the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision.
Section 251(1)(a) of the Act of 1961 confers on the first appellate authority plenary power while hearing an appeal against the assessment order. It can confirm, reduce, enhance or annul the assessment, he may set aside the assessment and refer the case back to assessing officer for making a fresh assessment in accordance with direction given by him.
Thus, scheme of statute itself empowers the first appellate authority to allow the appellant before it to go in the hearing of the appeal into any ground not taken in the grounds of appeal and decide the same unless he is satisfied that failure to raise such grounds was wilful or unreasonable, and where there is material or evidence before the assessing officer to support such claim. Such claim even if not raised before the assessing officer, if raised before the first appellate authority, he ought to consider and decide it, if he is satisfied abut the bona fide. In each case, it has to decide on fact of its own to entertain or not to entertain new claim or new ground.
6. Such was the view expressed by a three Judge Bench of the Supreme Court in CIT v. Kanpur Coal Syndicate : [1964]53ITR225(SC) which was not noticed by the two Judges Bench deciding Gurjargravures' case (supra). In Kanpur Coal Syndicate's case, the Apex Court considering the corresponding provisions of appeal under section 31 of Indian Income Tax Act, 1922, said :
'If an appeal lies, section 31 of the Act describes the power of the Appellate Assistant Commissioner in such appeal. Under section 31(1)(a) in disposing of such an appeal the Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminous with that of the Income Tax Officer. He can do what the Income Tax Officer can do and also direct him to do what he has failed to do.'
Considering the aforesaid scope of section 251(1)(a) of the Act of 1961, the another three Judge Bench of the Apex Court in Jute Corporation of India Ltd. v. CIT 0044/1991 : [1991]187ITR688(SC) reiterated the view expressed in Kanpur Coal Syndicate (supra) with greater emphasis. The court said :
'The above observations are squarely applicable to the interpretation of section 251(1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminous with that of the Income Tax Officer, if that is so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an appellate authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer. '
The court in Jute Corporation Ltd.'s case also noticed the decision in Addl. CIT v. Gurjargravures (supra) and doubted its correctness finding it in conflict with earlier larger Bench decision in Kanpur Coal Syndicate's case. Referring to Gurjargravures's case, the court said :
'Apparently this view taken by two Judge Bench of this court appears to be in conflict with the view taken by the three Judge Bench of the court in Kanpur Coal Syndicate's case (supra). It appears from the report of the decision in Gujarat case the three Judge Bench decision in Kanpur Coal Syndicate (supra) case was not brought to the notice of the Bench in the Gurjargravures (P) Ltd. (supra). In the circumstances the view of the larger Bench in the Kanpur Coal Syndicate, (supra) holds the field. '
7. In the present case, the Tribunal has applied its mind and then came to a positive conclusion that the claim related to the weighted deductions under section 35B of the Act on fulfilment of certain conditions, and therefore, the question about foreclosure of such contention which entail the applicability of section 35B of the Act to any expenses was not raised for the first time before the Appellate Assistant Commissioner but was before the Income Tax Officer.
We are, therefore, of the opinion that in the facts and circumstances of the case, the Tribunal has not erred in allowing the appeal and considering the case of Gurjargravures' case (supra) in its right perspective.
Accordingly, the question is answered in the affirmative that is to say in favour of the assessee and against the revenue. There shall be no orders as to costs.